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Paramount Fails to Deflect Home Video Royalties Lawsuit

Colin Higgins Productions recently won $26 million in a similar clash with Universal.

Colin Higgins Productions is on a roll in its fight with the studios over home video royalties.

On Friday the late director's namesake company submitted a settlement in its class action against Universal, in which the studio would pay $26 million to filmmakers claiming it underpaid their royalties. But weeks earlier, the company defeated Paramount's motion to dismiss its claims in a similar class-action suit.

The company in 2013 became one of several plaintiffs to challenge nearly every major studio over the issue of home royalties. They claimed the studios systematically underpaid them by calculating their participation shares of film revenue from 20 percent of home video revenue instead of the full 100. Higgins sued the studios around the same time director Stanley Donen sued Fox and Larry Martindale, trustee of the estate of late actor Charles Bronson, sued Sony. Suits against MGM and Warner Bros. followed.

The lawsuits trace the practice of calculating from 20 percent to the early years of VCR in the 1980s, when studios paid third parties to produce and distribute their home entertainment. The studios would receive 20 percent of the independent distributors' profits, then divide the 20 percent to the profit participants. But eventually the studios developed their own home entertainment divisions.

They nevertheless started writing into contracts they would pay filmmakers based on 20 percent of home video revenues. The practice became the industry standard. But the plaintiffs claim their contracts from before the 1980s didn't specify their royalties would be calculated from 20 percent, so they should've been paid based on 100 percent.

Higgins' company sued over the films Foul Play (Paramount, 1978) and The Best Little Whorehouse in Texas (Universal, 1982). Screenwriter Michael Elias, whose credits include Paramount's 1980 Serial, later joined the case challenging Paramount.

In June 2014 the studio claimed in a motion for summary judgment the claims of Higgins' company were barred earlier than the four-year statute of limitations for breach of contract suits. The plaintiffs sought to preempt the defense in their complaint through estoppel, claiming they couldn't have known until recently of the 20 percent-based accounting.

In an April 20 hearing in Los Angeles Superior Court, Paramount argued the company did know. The studio pointed to a 1981 audit report in which it indicated it was paying the company on 20 percent. "The fact is that Paramount would be severely prejudiced if more than 30 years after the fact without the ability to gather the evidence to fully defend itself it's required to face these claims for the first time," said the studio's attorney Robert Klieger.

Higgins' company responded with documents including a 1982 audit settlement agreement in which Paramount denied it paid on 20 percent. "The [1981] audit was limited in time. A settlement agreement was executed limited in time. There was nothing about 'we're going to continue to cheat this way in the future,' " said the plaintiffs' attorney Jeffrey Koncius.

Judge Elihu Berle sided with the plaintiffs, finding the two sides' documents presented triable questions of whether the plaintiffs knew of Paramount's accounting. (He granted the studio's motion on one claim, conversion, noting case law requires conversion concern a specific sum. "The simple failure to pay money owed does not constitute conversion," he said.)

The plaintiffs are represented by a team of attorneys from Johnson & Johnson. Kiesel Law and Pearson Simon & Warshaw represent Higgins. Klieger and Richard Kendall of Kendall Brill & Klieger represent Paramount.